Market Failure or Market Working?

Megan McArdle asks whether the lack of non-smoking bars is an example of market failure. McArdle, to be clear, is an opponent of smoking bans and is merely posing the theoretical question of why jurisdictions without smoking bans don't seem to have any non-smoking bars.

I'd posit that this isn't a market failure but a clear case of the market working. The reason that the market doesn't provide non-smoking bars is the same reason that the market eliminated fast food restaurants that allow smoking: because there's no demand for non-smoking bars and fast food restaurants that allow smoking. Non-smokers may say, "that's crazy," but the facts tell a different story. There was/is no demand for non-smoking bars because given the choice, smokers are going to go to smoking bars and non-smokers are going to follow their smoking friends. Non-smokers just don't care enough smoking in bars to abandon their smoking friends, just as smokers can forgo a cigarette to eat a quick meal at McDonalds. It's easy to say market failure, but I'm not so sure it happens too often in practice.